Barclays: Little upside for high-yield


"Total returns of high yield bonds will be under pressure in 2014 as rates are likely to drift upwards, and further compression of credit spreads to pre-2007 levels is unlikely given increased price volatility from rates, reduced secondary market liquidity, and lower demand from CDOs," says Barclays. The team notes high yield credit spreads briefly widened to 100 basis points this spring, but have since returned to the YTD lows (of around 60 bps), leaving little room for further improvement.

Maybe the best way to profit from a high yield ETF (HYG) not seen going higher in price anytime soon is to sell calls against it suggests the team, noting implied volatility remains elevated even as spreads have normalized back to pre-taper levels.

Junk ETFs: HYG, JNK, HYS, HYLD, SJNK, PHB, SJB, ANGL, XOVR, UJB, QLTC, SHYG

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